Economics Yr 12 Introductory Quiz

The central purpose of economic activity is

• to create maximum profit.

• the satisfaction of needs and wants.

• to achieve economic efficiency.

• to save scarce resources.

Answer explanation

The central purpose of economic activity is to satisfy needs and wants, as it drives production and consumption. While profit, efficiency, and resource saving are important, they serve the ultimate goal of fulfilling human desires.

In a free market economy, the economic problem of what goods should be produced is usually solved by

• consumers expressing their tastes and preferences in their pattern of spending.

• households completing business surveys to reveal their preferred products.

• firms planning their activities to meet production targets set by government.

• entrepreneurs producing their own goods to satisfy their own needs and wants.

Answer explanation

In a free market economy, consumers express their tastes and preferences through their spending patterns, which signals to producers what goods to create, making this the primary method for determining production.

The production possibility boundary below shows the possible combinations of fruit and wheat that a country could choose to produce. The country is producing OF fruit and OK wheat. If it decides to increase fruit production to OG, the opportunity cost in terms of wheat would be

• OJ.

• JK.

• OF.

• KL.

Answer explanation

To increase fruit production from OF to OG, the country must reduce wheat production. The opportunity cost is the amount of wheat sacrificed, which is represented by the segment JK on the production possibility boundary.

Features of the fundamental economic problem include

• both unlimited resources and many wants.

• both trade-offs and conflicting objectives.

• the provision of goods with no opportunity cost.

• both scarce resources and limited wants.

Answer explanation

The fundamental economic problem involves trade-offs due to scarce resources and conflicting objectives, as society must prioritize certain wants over others. Thus, the correct choice is both trade-offs and conflicting objectives.

The existence of scarcity in an economy implies that

• there are no free goods.

• there are no public goods.

• individuals must make choices.

• there has been a misallocation of resources.

Answer explanation

Scarcity means resources are limited, forcing individuals to make choices about how to allocate them. This is the essence of economic decision-making, making 'individuals must make choices' the correct answer.

The fundamental economic problem facing all societies is

• what, how and for whom goods and services should be produced.

• the existence of unemployed resources.

• a significant divergence between social and private costs of production and consumption.

• inequalities in the distribution of income and wealth.

Answer explanation

The fundamental economic problem is about deciding what, how, and for whom to produce, as resources are limited. This choice affects all societies, making it the core issue in economics.

The table below shows the production possibilities for a firm producing butter and cheese. It can be concluded from the table that, as production of butter increases, the opportunity cost of such production, in terms of cheese

• remains constant.

• falls.

• rises.

• rises and then falls.

Answer explanation

As production of butter increases, the firm must give up increasingly larger amounts of cheese, indicating that the opportunity cost of producing butter rises. Therefore, the correct answer is that the opportunity cost rises.

A free good

• is paid for by the government.

• has zero opportunity cost.

• is non-excludable and non-rival.

• has a perfectly inelastic supply.

Answer explanation

A free good is characterized by having zero opportunity cost, meaning it can be consumed without sacrificing other goods. This distinguishes it from other goods that require resources to produce.

A demand curve is drawn on the assumption that

• quantity demanded always increases as price falls.

• changes in price do not influence supply.

• price elasticity of demand does not vary along the demand curve.

• factors affecting demand, other than price, remain constant.

Answer explanation

A demand curve assumes that factors affecting demand, other than price, remain constant. This allows for a clear relationship between price and quantity demanded, illustrating how demand changes with price.